What’s the deal with i-Cable and China Mobile Hong Kong?
Struggling Hong Kong pay-television operator i-Cable Communications (01097.HK) saw its stock surge after announcing a partnership with China Mobile Hong Kong, a unit of mainland mobile giant China Mobile (00941.HK).
The deal will allow the two companies to leverage on each other’s network resources and explore more business opportunities. For example, the Hong Kong broadcaster could provide content from its news and entertainment channels to China Mobile subscribers.
The announcement, in fact, has raised speculation that China Mobile might later become the largest shareholder of i-Cable, which needs massive funding to support is daily operations.
According to the memorandum of understanding between i-Cable Telecom Limited and China Mobile Hong Kong, the former will receive fees from the latter for the use of its network resources, professional advice about network construction and maintenance, as well as television content.
The pay-TV company also said it will explore business opportunities from the combination of CMHK’s newly built network and its own network.
Once a definitive agreement is signed, it is expected to last 20 years and may be extended for another five years, the company said.
As the market very well knows, i-Cable has been suffering from tough market competition with the number of its subscribers declining from more than a million at its peak to around 830,000 currently.
That means declining revenue and expanding losses. In the first half of this year alone, i-Cable’s revenue reached HK$587 million but its operating costs, including programming, administrative costs, sales and marketing costs, and network costs, surpassed HK$800 million.
When i-Cable’s new investors came in last year, they had to pump around HK$1 billion into the company just to maintain its operations. Chairman David Chiu Tat-cheong said the company would need a new round of fundraising or a new injection by its shareholders to allow i-Cable to compete in the market. He declined to provide details of the fundraising plan.
A formal deal between i-Cable and China Mobile would go a long way in easing the pressure on the pay-TV operator.
The Hong Kong broadcaster has a lot of potentials. More than half of its network capacity remains idle, and therefore generates no money. Its network covers 2.3 million homes, but it only has a user base of 830,000.
China Mobile could take up part of this idle capacity to support i-Cable’s operation. It could use i-Cable’s fiber network to provide its own-brand home broadband services and support its own 5G network infrastructure.
Market watchers believe that the partnership, once it is able to turn around i-Cable’s business, will provide investors an exit opportunity.
According to i-Cable’s stock exchange filing on Monday, the deal gives China Mobile the right to review the agreement after 10 years. That means China Mobile could make an offer for the company a decade later.
i-Cable has been struggling for survival over the past decade as more and more people turn to their mobile phones for entertainment content. The company’s lifeblood is its highly reputable news program, which is praised for its in-depth China news coverage. As such, some market watchers suspect that the planned partnership may not be solely a business decision, but also a political one.
The deal implies that China Mobile could give i-Cable a stable income stream for 20 years, and given the crucial role that the state-owned company would play in the broadcaster’s survival, the newsroom management might face tremendous pressure as regards its coverage of China-related news, market watchers say. In short, i-Cable may find it increasingly hard to maintain its independent news coverage and commentaries after the partnership comes into effect.
Economic considerations have prompted many local media outlets to adopt a mild approach toward China news coverage. It is interesting to see whether there will be a significant change in i-Cable’s editorial direction after the China Mobile partnership.
Originally published at www.ejinsight.com on September 4, 2018.